{"id":80785,"date":"2015-11-10T05:05:18","date_gmt":"2015-11-10T10:05:18","guid":{"rendered":"http:\/\/countingpips.com\/?p=80785"},"modified":"2015-11-10T10:05:57","modified_gmt":"2015-11-10T15:05:57","slug":"time-to-buy-hong-kong","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2015\/11\/time-to-buy-hong-kong\/","title":{"rendered":"Time to Buy Hong Kong?"},"content":{"rendered":"
November 10, 2015<\/div>
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By WallStreetDaily.com<\/u><\/a> \"Hong<\/p>\n

By Carl Delfeld<\/a>, Special Correspondent<\/em><\/p>\n

Is the Hong Kong market a bargain or losing its edge?<\/p>\n

With the Hang Seng Index trading at its cheapest valuation in 10 years \u2013 close to the valuations of Russia\u2019s and Pakistan\u2019s markets \u2013 it\u2019s an important question.<\/p>\n

So what\u2019s wrong? A couple of things\u2026<\/p>\n

Crony Capitalism:<\/strong> The China-controlled government is blocking any political reforms. As a result, crony capitalism is steadily rising, with Hong Kong<\/a> at the top position of a \u201ccrony index\u201d put together by The<\/em> Economist. <\/em>The cost of living in terms of housing costs and food is soaring. Even the cost of groceries is 30% higher than in New York.<\/p>

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Manufacturing:<\/strong> A key pillar of the economy, manufacturing has almost completely migrated to other low-cost countries. And shipping, while still vibrant, is losing market share to lower-cost ports like Shanghai.<\/p>\n

Now, given my experience with Hong Kong politics, the economy, and business over three decades, I must say these trends are a little concerning.<\/p>\n

With China seemingly trying to marginalize Hong Kong in favor of developing Shanghai into the region\u2019s leading financial center, you might think the \u201cPearl of the Orient\u201d is losing its luster as the commercial and cultural gateway to Asia and that you should avoid investing in Hong Kong companies.<\/p>\n

I wouldn\u2019t bet on it for several reasons:<\/p>\n

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  1. Hong Kong still has a well-earned reputation for being one of the world\u2019s most open economies. That\u2019s why 1,389 multinational companies base their regional headquarters there, despite the fact that rents are double that of Shanghai.<\/li>\n<\/ol>\n

    In fact, according to the closely followed Heritage\/Wall Street Journal<\/em> 2015 Index of Economic Freedom<\/em>, <\/em>Hong Kong has remained at the top of the heap, followed by Singapore, New Zealand, Australia, and Switzerland. The United States ranked No. 12, while China is in the \u201cmostly unfree\u201d category at No. 139.<\/p>\n

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    1. In terms of growth and profitability, it matters a lot more where you do business rather than where your business is based. In this regard, Hong Kong companies have deep tentacles that reach into China and the dynamic Southeast Asian region.<\/li>\n<\/ol>\n

      The bottom line is that with the Hong Kong market trading at half the valuations of China, it\u2019s a genuine buying opportunity.<\/p>\n

      A Tale of Two Conglomerates<\/h2>\n

      If you wanted to take the shotgun approach to investing in Hong Kong, there\u2019s the iShares MSCI Hong Kong ETF<\/strong> (EWH<\/a>).<\/p>\n

      While this gives you exposure to a wide variety of large and mid-sized companies, I suggest zeroing in on two leading consumer conglomerates with a long history in Hong Kong, instead.<\/p>\n

      The first is Jardine Matheson Holdings Ltd.<\/strong> (JMHLY<\/a>).<\/p>\n

      Founded in 1832, the company is incorporated in Bermuda but headquartered in Hong Kong. About 40% of its profits are from greater China with 47% from Southeast Asia.<\/p>\n

      Here\u2019s just a sampling of its diversified businesses:<\/p>\n